Commercial Insurance Brokers — Disruptors Are Headed for You
Outdated technology has brokers at a disadvantage with newcomers ready to pounce.
- John Rodgers, Andrew Solar, Yogesh Sheth and Jordan Heichel
- August 2021
Uber shook up the transportation business and Airbnb stole market share from the lodging industry. Countless digital-first startups are entering established industries and taking over. And usually, they began with a capability and then applied it to change how a given industry operates. Uber started with an app, not a car. Airbnb started with a tenant looking for a place, not the property itself. As the digital age matures, some of the most antiquated, complex industries have been flipped upside down by players that never existed until a few years ago. Viewed from the other side, these industries were disrupted from the outside, seemingly from out of nowhere. The lesson is that legacy industries need to take a fresh look at their business models and be the ones to disrupt themselves.
This trend toward disruption will continue as the tech generation grows up. As baby boomers exit the workforce and the millennial generation develops a larger influence, there will be an exponential demand for speed, efficiency and simplicity. Those three words have never exactly described the insurance brokerage industry. However, those insurance players that focus on this shift have a chance to emerge as the winners of a new, tech-enabled future. How should an insurer play to win in this scenario? What business model changes are required?
What the Future Looks Like
The commercial (business-to-business) insurance brokerage space is ripe for disruption, unless legacy brokerages can get there first. The current industry is inefficient, labor intensive and digitally immature—but does it have to be? If you had to build a new commercial brokerage firm, would you invest in a technology platform or recruit high-paid brokers to gain market share? How valuable is the broker-client relationship? Commercial insurance brokers need to ask themselves whether they want to disrupt or be disrupted. By investing in digital transformation, incumbents can become more agile, fend off new entrants and disrupt the disruptors.
Brokers should recognize the urgency to amplify the digital journey to protect the business not only from yet-to-be-revealed outside disruptors, but also from system obsolescence and operational risk from within.
Short-Term Pain Leads to Long-Term Gain
Many commercial insurance brokers currently operate across disparate processes and obsolete systems that were accumulated through years of acquisitions. Undermaintained and largely disintegrated, these systems require upgrades and standardization to facilitate true digital transformation.
A hybrid model can bridge the path to full digitalization across the enterprise and allow team members to focus on value-added, revenue-generating client work in the medium term. The greatest value, however, will be in developing the organization to deliver a digital transformation platform and position the company to progress forward as the future of the industry.
Imagine a world where a contract can be quoted and bound at the click of a button. A world where clients can access local and international markets without paying additional fees and enjoy a multitude of product offerings, depending upon risk appetite, that are not available through traditional channels.
A future where markets can introduce new products at breakneck speeds while capturing data to drive rapid testing to improve the underwriting process. A future vision that includes initiating a claim using an application and settling a claim within just days of document submission. A future where risk managers can access a dashboard that allows them to immediately view and drill down into global exposure categories.
This is the future of the commercial insurance market.
Recognizing that this ideal vision is capital intensive and requires a monumental organizational shift, legacy insurance brokers should employ the hybrid approach by developing an end-to-end digital platform to handle low-value tasks while offering high-touch brokerage services for the most valued activities. The digital platform, which would initially focus on a discrete business line, serves as the basis for long-term digital evolution. In parallel, work can be done that allows brokers to maintain their primary fiduciary responsibility of ensuring that clients get optimal deals, leaving mundane, repetitive tasks, such as workflow automation and straight-through processing,to technology.
One place brokerage firms could start would be collections and billing, where there are low-value potential targets for automation. The platform should be built to support a lean process across the entire business-to-business insurance value chain from contract issuance to servicing. The hybrid model serves to better leverage the value of brokers, allowing them to focus on high customer impact activities; and it simultaneously builds the platform to serve as a roadmap for enhancing the business model.
Though it remains complex, outdated and complicated, the insurance brokerage industry will ultimately see that digitalization creates speed, efficiency and simplicity. The shift is already in motion at the outer edges of the industry. Brokers have been resistant to digital transformation, as it is time consuming and expensive and does not directly improve their sales pipeline, given the longstanding relationship-based business model.
However, brokers should recognize the urgency to amplify the digital journey to protect the business not only from yet-to-be-revealed outside disruptors, but also from system obsolescence and operational risk from within. With digital transformation comes efficiency gains, improved customer satisfaction, and, ultimately, back-office empowerment to gain market share. Focusing brokers on higher-value work and increasing the use of technology will give the industry the needed lift to reach this optimal point.